Empty grocery shelves return as sick employees, supply chain delays collide

Key Points
  • Shares of Albertsons, Kroger and Walmart fell on Tuesday, as investors worried that omicron-fueled worker shortages and supply chain delays would hurt major grocers.
  • Albertsons CEO Vivek Sankaran said on an earnings call that the latest spike in Covid cases has delayed the recovery to more typical levels.
  • The omicron variant has exacerbated worker shortages in nearly every industry, from airlines to restaurants.

In this article

Bread aisle shelves at a Target are seen nearly empty as the U.S. continues to experience supply chain disruptions in Washington, U.S., January 9, 2022.
Sarah Silbiger | Reuters

Empty shelves have returned at supermarkets as grocery employees call out sick and truckloads of food arrive late.

That's one of the latest outcomes of the omicron variant, which is straining the workforce. Investors are seeing the pressure and bracing for a longer period of high costs for labor, transportation and food.

Shares of major grocers including Albertsons, Kroger and Walmart fell Tuesday. Albertsons shares fell 9.75% to $28.79 at market close, after the company detailed the supply chain challenges and inflated costs it's seeing on its earnings call. The dive in its stock occurred even though the grocer raised its fiscal 2021 forecast. Shares of Kroger fell about 3%, while Walmart shed less than 1%.

Covid cases and hospitalizations have hit records in the U.S., as the highly contagious variant spreads. The country reported about 1.5 million new cases on Monday, according to data compiled by Johns Hopkins University. Hospitalizations have surpassed last winter's peak, with 144,441 Americans hospitalized with the virus as of Sunday, according to data tracked by the Department of Health and Human Services.

Workers feel the strain

Grocery store workers are feeling the effects of omicron, too. Samantha Webster helps replenish coolers with butter, gallons of milk and more as dairy manager of a Safeway store in the San Francisco Bay Area. Safeway is owned by Albertsons.

This inflation is driven by labor shortages and supply chain issues, says Steve Weiss
This inflation is driven by labor shortages and supply chain issues, says Steve Weiss

Since early December, she said more and more employees have had to take off from work because of getting Covid or having close contact with someone who is sick. She said 15 employees are currently out of the store's nearly 60-person staff.

Fewer pallets are arriving from Safeway's warehouses and there are not enough grocery workers to help unload them, she said.

In the dairy department, there are gaping holes where there used to be cream cheese and yogurts. Fresh bagels and loaves of bread are missing in the bakery aisle. And in the produce department, potatoes are running low.

In other aisles, she said there are signs of strain, too, such as a shelf filled with cans of clam chowder soup because other varieties, like minestrone and pea soup, did not arrive.

"The shelves are becoming more and more bare," she said. "One person can't keep an entire department going."

CEO says Covid prolonging out-of-stocks

Albertsons CEO Vivek Sankaran said on the call that the grocer has had low inventory or missing items in some categories for several months. He said the latest spike in Covid cases is prolonging some of those out-of-stocks.

"We were expecting that supply issues to get more resolved as we go into this period right now," he said on the call. "Omicron has put a bit of a dent on that. So there are more supply challenges and we would expect more supply challenges over the next four weeks to six weeks."

The new coronavirus variant is exacerbating worker shortages across industries, from restaurants and retailers to airlines. Company leaders are being forced to make tough decisions, such as slashing service hours, canceling flights and closing stores. That has started to show up in the sales numbers, too. Lululemon is among the retailers that have warned that fourth-quarter earnings and revenue would be on the low end of estimates as it feels the effects of having reduced hours and limited staff.

For grocers, though, the challenge may be felt more because it is low-margin business where companies often have less room to raise employee wages, pay for overtime or pass on higher costs to customers. Some shoppers have less money to spend, too. The child tax credit, which gave families monthly payments, ended in December.

On Tuesday, Albertsons leaders said that costs have risen on ingredients, packaging, transportation and labor. They said the grocer has passed through some of that inflation, but has tried to hold the line on prices of essential items that customers buy frequently.

This inflation is driven by labor shortages and supply chain issues, says Steve Weiss
This inflation is driven by labor shortages and supply chain issues, says Steve Weiss